Covered Calls

Resources

Getting Started

Daily Newsletter, Tuesday, 01/27/2004

HAVING TROUBLE PRINTING?

The Option Investor Newsletter Tuesday 01-27-2004
Copyright 2004, All rights reserved. 1 of 3
Redistribution in any form strictly prohibited.
In Section One:
Wrap: Volatility Returns
Futures Markets: The Downphase That Could
Index Trader Wrap: Tech bulls get caught with their SOX down
Market Sentiment: No Shortage
Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP (view in courier font for table alignment)
************************************************************
01-27-2004 High Low Volume Advance/Decline
DJIA 10609.92 - 92.60 10701.77 10609.92 2.10 bln 1405/1835
NASDAQ 2116.04 - 37.80 2152.75 2116.04 2.14 bln 1336/1936
S&P 100 567.15 - 6.29 573.44 567.15 Totals 2741/3771
S&P 500 1144.05 - 11.32 1155.37 1144.05
W5000 11177.42 -104.40 11281.80 11177.42
RUS 2000 595.17 - 6.33 601.50 594.93
DJ TRANS 3041.22 - 25.50 3074.18 3033.34
VIX 15.35 + 0.80 15.44 14.74
VXO (VIX-O)15.32 + 1.00 15.41 14.75
VXN 23.03 + 2.04 23.07 21.60
Total Volume 4,634M
Total UpVol 1,533M
Total DnVol 3,054M
Total Adv 3139
Total Dcl 4258
52wk Highs 905
52wk Lows 6
TRIN 1.19
NAZTRIN 2.02
PUT/CALL 0.87
************************************************************
Volatility Returns
After a +134 point gain on Monday to a new two year high the
Dow slipped -92 today as put buyers outweighed call buyers
almost 3:1. The Nasdaq gave back all its gains from Monday
and returned to the low 2100s on weakness in the semiconductor
sector. Volatility may have been higher today but it is still
at relatively low levels. Considering our markets are at two
year highs this is not surprising. When the bulls are running
the volatility gets trampled.
Dow Chart - 120 min
Nasdaq Chart - Daily
The economic calendar was slim today with only two reports.
The Chain Store Sales showed a jump of +1.1% for the week
after three weeks of decline. The Southwest was the strongest
region as blizzard conditions and severe cold hampered those
consumers in the Northeast. The ICSC raised it estimates for
all of January to a gain of +4.0% to +4.5%. This is a +1%
gain over the prior +3.0% to +3.5% estimates.
The Consumer Confidence hit an 18 month high at 96.8 but
was less than consensus expectations at 98.5. The December
decline was reversed on the strength of a gain in the
present conditions component. Not all components were rosy.
Plans for new purchases slipped slightly and availability
of jobs only increased slightly. The lower than expected
headline number may have been influenced by the blizzards
across the country. Fighting the elements tends to depress
consumers and makes them less receptive to shopping. We all
know shopping is a mood elevator for at least half the
population. Confidence should continue to rise as long as
employment continue to improve. Once the tax refunds start
flowing the urge to spend will also grow.
Kraft (NYSE:KFT) did not help confidence when they announced
they were cutting -6,000 jobs including 1,300 salaried jobs
over the next three years. They will take a charge that will
impact their earnings for these layoffs.
The news was all about Martha Stewart and earnings today.
Since we are all Martha'ed out I will not bore you with
what she had for lunch or how many powder room breaks she
had. We will concentrate instead on the real news with
several Dow stocks announcing earnings.
Merck (NYSE:MRK) announced a fourth quarter profit that
fell -26% due to a decline in sales and charges for recent
job cuts. MRK posted +62 cents per share and reaffirmed its
2004 full year estimates. MRK traded up fractionally for
the day and up +1.50 for the week to $47.35. It looks like
new life is coming back into the stock after being a Dow
dog for the last six months. Drug stocks are normally
defensive and MRK could be benefiting from the rotation
out of chips.
Another Dow component, DuPont, lost -50 cents despite
beating the street and issuing an upbeat outlook for the
year. SBC lost -74 cents to close at $26 after posting a
drop in profits and rising employee costs. The results
were inline with estimates and were uninspiring. Investors
are watching the decline in the telecom sector as each of
the major players reports. Wire lines are dropping and
with them the monthly and long distance revenues.
McDonalds gained +17 cents inline with expectations on an
increase in sales due to a restructured menu. Salads and
chicken are beating out hamburgers as the high profit
items.
The biggest loser on the Dow was Caterpillar despite a
surge in revenue to $6.47B from $5.38B and beating estimates
by +3 cents. The drop in stock price was due to the retirement
of their CEO and new guidance. The company said they did
expect 2004 earnings to jump +40% and revenue +12%. They
did not give short term guidance as they had in the past
and simply said 2004 will be strong. This prompted some
analysts to suggest they were hiding a weak first half.
Also, much of their gains were due to currency translation
benefits from the weak dollar.
Other major earnings of note with misses or lowered
guidance included BK, LMT, CNF, RTN and DJ. After the bell
we saw another flurry of tech earnings and most were positive.
AMZN est +0.29, act = +0.29 inline, raised guidance
BRCM est +0.16, act = +0.19 beat
FLEX est +0.14, act = +0.17 beat, raised guidance +3 cents
AFCI est +0.09, act = +0.10 beat
ADVP est +0.55, act = +0.55 inline
EFII est +0.21, act = +0.27 beat
CYMI est +0.00, act = +0.04 beat
ERTS est +1.20, act = +1.26 beat
MENT est +0.31, act = +0.30 miss
MLNM est -0.31, act = -0.30 beat
MGAM est +0.48, act = +0.48 inline
PXLW est +0.09, act = +0.06 miss
NTIQ est -0.01, act = -0.04 miss
HRS est +0.49, act = +0.50 beat
ELX est +0.23, act = +0.24 Raised guidance +2 cents
RHI est +0.03, act +0.03 inline
NET est +0.21, act +0.26 beat
AV est +0.05, act +0.07 beat
The two biggest newsmakers were AMZN and BRCM. Amazon did
report blowout 4Q revenue and its first ever back to back
quarterly profit. Proforma earnings were 29 cents and that
was inline with the consensus estimates. They raised the
Q1 revenue estimates to $1.39B to $1.49B and well above
prior estimates at $1.32B. Unfortunately they did not
provide profit estimates. Analysts are expecting +16 cents
for Q1 and with higher sales you would think they would be
inline or maybe even beat. Analysts were worried that
margins may not be as good in the 1Q due to product mix.
Also the company benefited greatly from currency translation
issues in the 4Q. $98 million in revenue and $6 million in
profit came from currency gains. With the decline in margins
and higher shipping costs there were plenty of questions
for AMZN. They also said there was a disturbing rise in
inventory levels which could be pointing to a slow down
in sales. AMZN traded down -$3 in after hours.
BRCM beat the street by +4 cents but the stock dropped
sharply on news they were going to issue $750 million in
new stock or debt. That was quickly reversed when they
raised guidance on the conference call and suggested sales
could grow as much as +10% in the 1Q. The +10% number works
out to $527 million and well above the prior estimate of
$463 million. The company said they saw substantial new
bookings late in the 4Q and early in the 1Q and that new
enterprise spending could provide a big opportunity. They
are planning on issuing 30 million new shares to enable
a future acquisition. Four companies bought more than
48% of Broadcom's output. Dell, Cisco, HPQ and Motorola
each bought more than 10% with HPQ the most at 15%.
MSFT dropped -55 cents on news that the EU may issue a
negative ruling against Microsoft and try to substantially
change the way Microsoft does business. This is old news
but the European Commission did confirm it was wrapping
up its investigation. The EC has a draft decision and those
are normally used to exercise leverage against the company
in advance of the final ruling. Microsoft said it was in
active talks to insure a positive resolution. Sounds like
they are in a tight spot and the EU/EC is applying the
screws. The EU has threatened to force Microsoft to strip
Media Player out of Windows to give RealNetwork and Apple
a more competitive opportunity.
Overall earnings have been very strong. The best in ten
years according to some analysts. First Call said earnings
were coming in at +25% so far and could rise to as much as
+27% as some smaller companies announce next week. This is
a very strong quarter and helped by a weak comparison to
Q4-2002. The average company beating estimates is beating
by +19% compared to an average of +6% in normal quarters.
The only problem is in the guidance. Because the good
results have been expected for two months many stocks are
seeing their prices battered when they announce. When
expectations are so high it takes almost super human
guidance to attract new buyers after the announcement.
Guidance has been good with quite a few companies raising
their outlook but it has not been exceptional.
SOX Chart - Daily
Some of the stocks getting hit the worst on good news have
been the semiconductor stocks. The sector is well off its
highs with the SOX dropping -7% in just the last five days.
This includes the monster gains from Monday's romp that
were completely erased on Tuesday. At 517 the SOX is very
close to ending the month with a loss. The high of 560 was
set back on the 12th. NVLS posted earnings on Monday night
and dropped -5.85 on Tuesday. KLAC lost -1.70, PHTN -3.66,
MXIM -3.05, CCMP and UTEK about -$3 each. SNDK continues
to sink lower with another -2.20 today. If the SOX is the
leading indicator for the Nasdaq then it is no surprise
that the Nasdaq gave back all its gains from Monday and
is down for the week with a -37 point drop today. There
was a rumor making the rounds today that PMCS was seeing
an order slowdown from Cisco, which is its biggest
customer.
Are we doomed to drop from here? Not necessarily. Remember
earnings are excellent. It is just that investor profits
are in the excellent category as well. Remember also that
we have a Fed meeting underway that will end at 2:15
Wednesday afternoon. There is high risk that the Fed will
change its bias statement and traders are just taking some
profits off the table in advance. I am just surprised it
did not happen on Monday. The afternoon buy program that
triggered the short squeeze was entirely out of character.
The bounce that ensued simply gave investors one more
chance to exit at two year highs and dodge a fickle Fed
statement.
Tomorrow afternoon we will either get the "considerable
period" statement or we won't. With the market at two year
highs and earnings the best in ten years my bet is we get
a new bias. If they are ever going to get a free shot this
is it. The bullish sentiment is still so strong it is
nearly bulletproof. According to Fed watchers there is
almost no chance of a rate hike so they are playing the
rate lottery with OTM options. As long as there is a
"considerable period" statement they are looking at six
months before the Fed will hike rates. Should that
statement disappear and language about strong economy and
rising employment appear in its place then bonds will die.
By changing the statement they are loading the rate hike
gun. It does not mean they are cocking it but just the
presence of a loaded gun is enough to strike fear in the
bond markets and by association the equity markets. Nobody
expects any hikes this year so this is all just positioning
and speculation but the best of all worlds is already priced
into the market. Any change in the bias could cause temporary
movement. That movement could be a couple hours or a couple
days but is not likely to be lasting. Bond yields have
already spiked up over the last three days on fear in
advance of the meeting.
Any market shakeup should be brief based on the current
bullish sentiment. That sentiment could change at any time
but it won't be because the Fed says the economy is strong.
If it changes it will simply be due to the overbought
conditions and lack of a catalyst to move higher. Let's
face it, Monday's move was very bullish. The Dow moved
over two year resistance highs to close at 10700. This
clears the way to 11,000-11,300 for the next serious
resistance. The Tuesday drop held over 10600 and still
in bullish territory. The flaw in Monday's rally was the
Nasdaq which stopped at 2150 resistance once again and the
Russell which stopped at 600 resistance. These are strong
levels for both indexes considering their overbought
conditions.
The market drop on Tuesday was literally led by the SOX.
This sunk the Nasdaq and dragged IBM and INTC and the Dow
down with it. CAT did not help either. However, help is on
the way. The SOX got help from the BRCM earnings tonight
and the 517 close is only +2 points above support at the
50 dma. This is the key point to watch in the morning. As
long as the 50dma at 515 holds the Nasdaq is not going
very much lower. The Nasdaq has strong support itself in
the 2085 to 2110 range. We do not need to start worrying
until the Nasdaq trades below 2085.
The Dow has strong support at 10600, 10500, 10400 and
10300. We would have to see a serious trend change to
break all those levels. The biggest potholes in our future
are the Fed announcement at 2:15 and the GDP on Friday.
The economic calendar heats up beginning on Thursday and
continues into next week. Recently economics have been
market favorable and until that changes traders need not
fear the normal reporting cycle. The GDP has the biggest
potential. A number under +4.5% would be a shocker
especially after the strong earnings. Analysts are now
expecting another blowout and that expectation could be
the biggest hurdle. The Fed will have advance notice of
the GDP in their meeting and will have already acted
accordingly.
Expect some volatility to appear when the Fed announcement
is made at 2:15 and then a choppy market the rest of the
day regardless of the announcement. Sanity should return
by Thursday but that does not mean the markets will be
directional. Friday is month end and window dressing
should keep us in the current range if there are no
economic disasters. For the rest of the week keep your
eyes on the SOX and 515. As long as we do not stray too
far away from that level we are still in striking distance
of a new high. Should it break that level on good news then
profit taking could take it down to 475 with a pause at
500. Use it as your market guide and you will not be far
wrong.
Enter Passively, Exit Aggressively.
Jim Brown
Editor
***************
FUTURES MARKETS
***************
The Downphase That Could
Jonathan Levinson
An intraday downphase actually followed through today, with
weakness in equities retracing most of yesterday's gains.
Treasuries, gold and silver advanced as the US Dollar Index
declined.
Daily Pivots (generated with a pivot algorithm and unverified):
Note regarding pivot matrix: The support, pivot and resistance
levels above are derived from the high, low and closing price
levels by a simple mathematical formula. They are not intended
to be predictive of market turning points or to serve as targets,
but rather represent the range retracement levels as generated by
the pivot algorithm. Do not think of them as market "calls"
or predictions. Like any technically-derived indicator or price
level, the pivot matrix values should be regarded as decision
points at which to evaluate current market conditions. Visit us
in the Futures Monitor for our realtime views of the various
markets covered here.
Chart of the US Dollar Index
The usual 3AM selling became a cascade when London opened and
continued through most of the cash session, with the USD Index
dropping over 10 basis points to trade the low 86.25 level as of
this writing. The selling was sufficient to cause the first
suggestion of a pause in the daily cycle upphase but no sell
signal has been given. The move coincided with strength in
metals and in FCOJ and coffee futures. Silver led the CRB which
was nevertheless lower by .18 at 267.09 on weakness in cotton,
corn, soybeans and crude oil futures.
Daily chart of February gold
February gold had a big day, printing a key upside reversal with
a lower low and higher high above the recent session tops, with a
high of 412.40. The bounce came from a test of the rising
support line and engulfed the losses of the past three sessions.
The daily cycle downphase did not abort, but the Macd histogram
is showing a bullish divergence. 412-3 was significant downside
support and is now acting as resistance. If that level breaks to
the upside tomorrow, I expect to see the daily cycle downphase at
least pause for the first time since it kicked off earlier this
month. For the day, February gold added 7.10 to close at 410.60,
a 1.76% move. March silver added 4.3% to close at 6.55. XAU
added 1.93%, HUI +2.54%.
Daily chart of the ten year note yield
Ten year notes rose strongly today, with the yield (TNX) dropping
5.3 bps or 1.28% to close at 4.087%. This retracement of
yesterday's gains did not impede the daily cycle upphase, but
another day like today might. The current 4.08% level is
confluence support below which a retest of 3.9% support cannot be
ruled out. But for the moment, the move looks like a retrace of
recent gains in the yield within the context of a daily cycle
upphase.
Daily NQ candles
The NQ went out half a point above its session low, closing at
1520 and below the rising channel trendline. This break is
significant, but bear in mind that it's only my trendline, and
the 1515-20 area is strong support. The wide-ranging move broke
yesterday's low slightly and reignited the daily cycle downphase
that had been in the process of aborting after yesterday's
powerful run. Below 1515, 1492 and then 1460 are the next
significant supports.
30 minute 20 day chart of the NQ
Newcomers may not know one of my favorite chart patterns, named
by a dear friend and mentor, "The Finger" formation. The
stoprunning panic blast higher doji-ed back down, retracing the
entire move just as quickly. The surprise here was that the 30
minute cycle downphase actually played out fully for a change.
The selling lined up with synchronous daily and 30 minute cycle
downphases, optimal conditions for bearish trades. The key 30
minute cycle oscillators are now oversold, not yet reversing but
in prime reversal territory, and this right on key support. If
it's going to bounce, this should be the place, but below 1515,
the 30 minute oscillator will likely be trending and bears in
control, for a change. Bulls can look for aggressive entries
around current levels but stops should be placed close beneath
1515 in case the bottom falls out.
Daily ES candles
ES stopped right on the rising lower channel trendline at 1142,
closing half a point above it. Most of yesterday's gains were
erased, as was the daily cycle uptick in the trending daily
oscillators. A move below 1140 would be an obvious channel
break, but the failure of those tests since mid-December is also
obvious. On a daily basis, there's nothing to do here either
way, as the ES closed on uptrend support. Bulls will be looking
to buy current levels with a stop nearby at 1140, while bears
should wait to see the trendline fail with a break of 1140.
20 day 30 minute chart of the ES
The 30 minute cycle downphase is as oversold as it's been in
weeks, with the ES resting right on rising trendline support.
Support is currently at 1139-40, followed by strong support at
1128-32. While particularly dubious of the gains of recent
weeks, it will take something special to break the current 1139-
40 support, and I'd be shocked to see the lower support fail. If
so, it will signal a true daily cycle downtrend commencing. With
the FOMC announcement due tomorrow, we have the potential for a
major direction event. But on the pure idealized cycles,
extrapolating from the action of recent weeks, a bounce should be
expected from or close to today's closing print.
150-tick ES
The short cycle oscillators all finished deep in oversold
territory, with Keltner support just north of 1140. A move lower
will set these oscillators trending and should indicate further
weakness to target the 1132 level.
Daily YM candles
Nothing to add on YM, which most closely resembles ES. The
rising channel support line held into the close.
20 day 30 minute chart of the YM
We saw metals and treasuries advance against US Dollar weakness,
and equities declined. With the FOMC meeting on deck, I expect
volume to be light tomorrow morning. Volatility took a jump,
with the VXO up 6.98%, and the question is whether typical pre-
FOMC doldrums or the current higher-anxiety atmosphere will
prevail. Support at current levels is strong, but we have a
break of the channel already completed by the NQ. While the
market feels bearish, these moments have been proven to be traps
for the past several months. Bottom line: look for a bounce at
current levels, and if it doesn't come, then I expect potentially
big selling as the daily cycle downphases on ES, NQ and YM
reassert themselves over the oversold intraday timeframes. See
you tomorrow.
************************Advertisement*************************
No time to follow the Market Monitor? Tired of missing good Trades
because you stepped away from your computer?
OneStopOption Group can follow the Market Monitor for you. You
choose the number of contracts, we take care of the rest!!
Trade Stock Options, Stocks and ALL Futures with the same Group.
Call us 888 281-9569 to see if you qualify to have us rebate your
subscription cost.
http://www.OneStopOption.com
**************************************************************
********************
INDEX TRADER SUMMARY
********************
Tech bulls get caught with their SOX down
While I've been suffering from flu symptoms the past couple of
days, the thought of trying to eat a potato chip has my face
turning green.
Forward earnings guidance from chip-related names like Novellus
(NASDAQ:NVLS) $34.40 -14.5% and Altera (NASDAQ:ALTR) $22.52
-6.71% helped set a negative tone for today's session, where
anything chip-related had a bull's face turning red. The
Semiconductor Index (SOX.X) 517.42 -4.44% lead broader market
declines, where the bulk of yesterday's gains for the major
indices were erased.
In short, technology bulls appeared to have been caught with
their SOX down, and while the invention of elastic replaced the
need for socks-suspenders, SOX 500-504 looks to be an important
near-term level of support.
U.S. Market Watch (01/27/04 Close) -
I've shown my QCharts list of major indices and sectors, where
today's trade saw a broadly lower trade, with the technology
portion (MSH.X thru XTC.X) suffering the bulk of today's selling.
I've displayed today's percentage changes (Net %) as well as 5-
day net percentage change (5DyNet%) and 20-day net percentage
change (20DyNet%), which gives us a snapshot glance at where
we've been and where things are at.
While I've highlighted the Semiconductor Index (SOX.X) as
tonight's "sector of focus," the Disk Drive Index (DDX.X) 137.19
-1.69% has been a weak technology sector of late, where building
competitive pressures in the flash-memory markets has weighed on
names like SanDisk (NASDAQ:SNDK) $58.14 -3.66%.
Semiconductor Index (SOX.X) - Components (01/27/04)
Here's a quick look at the Semiconductor Index (SOX.X)
components, where NVLS, ALTR and MXIM paced declines. I've
placed PINK asterisks by those components that are components of
the NASDAQ-100 Index (NDX.X) 1,519.23 -2.21%, where any loss of
semiconductor strength/leadership may be a bad omen for the
NASDAQ-100, and perhaps broader technology. I do take note of
Micron Technology (NYSE:MU) $15.71 +4.73% being a lone gainer in
today's trade. Micron makes DRAM chips, which are perhaps the
most commoditised portion of the semiconductors.
While today is just one day, it makes little sense to this
analyst, from a fundamental point of view, that the most
"commoditised" portion of the chip sector would see gains, if the
grim reaper was ready to harvest some heads in the
semiconductors.
Market Snapshot / Internals - 01/27/04 Close
The major indices reached their most bullish levels of the
session at 10:15 AM EST, which was just after the Conference
Board released its January Consumer Confidence Index reading,
which jumped to 96.8 from December's 91.3 reading, but was still
shy of economists' forecast of 99.0. While the major indices did
try and firm late in the session, a brief attempt at a rebound
into the 03:00 hour stopped dead in its tracks as the bond market
closed.
One observation I made was in the Dow Industrials (INDU)
10,609.92 -0.9% as it approached its WEEKLY R1 of 10,655.77 after
what looked to be a successful test of support at 10,613.48,
where yesterday afternoon's rally really took hold.
Dow Industrials (INDU) Chart - 5-minute intervals
I couldn't have capture the highs of the afternoon any better
than if I really tried as this screen capture, taken at 02:35 PM
EST saw the INDU dilly dally just below the WEEKLY R1 (thick red)
after it kissed our MONTHLY 19.1% retracement of 10,652.33. The
"Pow!" was where the INDU broke an intra-day level of resistance,
that eventually saw the INDU close at new 52-week highs. With
the INDU closing at 10,609.92 -0.86%, the bulk of yesterday's
gains have vanished.
But lets quickly take a look at the Semiconductor Index (SOX.X),
where I wanted to show this index with WEEKLY and MONTHLY Pivot
retracement, which I think can become a test and give us some
"spatial" observation as to WEEKLY and MONTHLY pivot levels in
respect to the other major indices.
Semiconductor Index (SOX.X) - Daily Intervals
I wanted to quickly look at the SOX.X chart with WEEKLY MONTHLY
Pivot levels. Many NASDAQ-100 Tracking Stock (AMEX:QQQ) $37.74 -
2.2% traders like to keep a close eye on the SOX, and see the SOX
as a leading indicator/sector for the Q's. At times, the QQQ
itself will lead a SOX advance/decline and is why index trading
can be much more complex that individual stock trading as there
are so many interrelationships taking place.
It becomes rather evident that SOX 540 is a rather important
level of resistance right now, where 521 and 528 become near-term
measures for any strength. You will see some obvious ties with
the SOX's WEEKLY S1 514 and overlap of its WEEKLY 80.9%
retracement of 514.24, as with the yellow "zone of support" from
WEEKLY S2 and MONTHLY Pivot 504.21.
In the Oscillators (MACD and Stochs) I've tried to envision a
potential SOX support at 514 as Stochs reach "oversold."
However, for Stochastics, I'm more skeptical of their reliability
in a trending market (the regression channel is still bullish).
MACD currently ties in better with a very bullish index taking a
rest, where support lies at 500-504.
NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals
The similarity I see right now with the SOX.X and the QQQ is
marked by the yellow "zone of support." While the grim reaper
may be coming for the SOX near-term I'd be monitoring the SOX for
support from 500-504, in correlation with the QQQ at
approximately $37.36.
I' not sure we can always associate a 4.14% decline in the SOX
with a 2.2% decline in the QQQ. I do think the pivot matrix
levels do give some levels where we can measure strength/weakness
from as it relates to the SOX/QQQ relationship. The simple
moving averages are of no real help.
I totally agree with QQQ traders that the semiconductors
strength/weakness play an important role in how the QQQ trades,
and if a QQQ bull is to look for bullish pullback entry in the
$37.36-$37.53 area, I would think it best that the SOX be holding
at or above the 500-504 zone.
One good "tell" for a bull entry would be if the QQQ were just
sitting in the $37.36-$37.53 area, while the SOX.X were moving
higher above 521 or 528 as if a bull's hoof were being applied to
the gas pedal. Right now it's not.
S&P 500 Index (SPX.X) Chart - Daily Intervals
I've pointed to a spot on the SPX's chart dating back to early
January and 4-days of trade, as what we saw yesterday (SPX
closing new high) then quickly reversing from the opening bell
the following day.
There are some similarities in the SPX chart as the SOX, but not
as striking as found with the SOX/QQQ. The one "suspicious"
trade I noted today was that the BIX.X session high was 355.38,
which was 0.01 shy of MONTHLY R2. While the BIX.X has been
extremely strong, as it might relate to SPX MONTHLY R2 and BIX.X
MONTHLY R2, then the BIX.X came just shy of "confirming" some of
the strength seen yesterday in the SPX when it saw trade further
above its MONTHLY R2. SPX and OEX traders have appreciated how
the financials have lent to SPX/OEX strength and while I wouldn't
consider today's trade in the banks as "weak," their stopping
just shy of MONTHLY R2 may hint that some of the recent merger-
related news in the sector is being digested.
Pivot Analysis Matrix -
I spent quite a bit of time on the SOX tonight and am running
late with tonight's wrap. The "key" levels where I'd have an
upside and downside alert set would be at OEX Pivot and OEX R1
for weakness and strength. I should have "dashed red" the SPX
MONTHLY R2 and DAILY R1 as this 1,152 level was traded through
today and would be deemed a tentative level of resistance for
tomorrow, but a resistance level to be monitoring should the
major indices attempt a rally into tomorrow afternoon's FOMC
announcement.
A final note. I listed all of the SOX components tonight. I
didn't do this to just show what a "whacking" some of them took.
I (Jeff Bailey) don't know if this is the beginning of the end
for the semiconductors. I do know this though.
If institutions are still firmly convinced of a longer-term bull
market intact and some have been sitting on the sidelines the
past couple of months, some of the SOX components, like a NVLS
that got creamed, may suddenly be deemed "attractive" as this is
now a valuation level that makes sense, relative to the longer-
term outlook. Let's keep an eye on some of these stocks and
follow their progress. Those that have been hit hardest might
firm, while those that may still have some profits to be taken
out of them move lower in coming sessions. Still, it is
difficult to say that NVLS and ALTR's guidance isn't simply based
on their own products not measuring up to the competitions.
Jeff Bailey
************************Advertisement*************************
Live Securities Brokerage Service with Licensed Option Principals
OCO Stop & Profit Orders OneStopOption
All types of Spreads and Buy Writes 888-281-9569
Auto-Trade Market Monitor Signals
Personal Service and Education
**Services available for Foreign Traders including Canada**
http://www.OneStopOption.com
**************************************************************
****************
MARKET SENTIMENT
****************
No Shortage
- J. Brown
There seems to be a growing number of analysts suggesting that
investors begin to "trim" their portfolio. Take some money off
the table, maybe scale down or get rid of those stocks that are
under performing. Oh, it's not that they're bearish. Most stock
analysts you hear from are bullish but everyone keeps looking at
the horizon for the long overdue correction. Any event is
suddenly a good excuse to do a little profit taking and this week
has no shortage of events.
You could take last night's earnings reports from TXN or NVLS.
Despite a decent report investors sold the news on TXN and they
absolutely ran for cover after NVLS warned. If chip stock
earnings aren't your style then the Conference Board's consumer
confidence index could be your event. Economists were looking
for a rise to 98.5 in January, up from 91.7 in December. What we
got was a rise to 96.8. This is the highest consumer confidence
since July 2002 but it's still a disappointment. Not a big
enough event? There's nothing bigger than an FOMC meeting. The
current two-day meeting is schedule to end tomorrow and we'll get
the Fed's decision on interest rates Wednesday afternoon. No one
expects any change in rates so the focus is all on their bias
going forward. Will they use the "considerable period" language
or not?
Want more? Tomorrow we'll get the Durable goods order for
December. Economists are expecting a rise of 2% to erase
November's decline. We'll also hear the new home sales numbers.
Estimates are for a small rise to an annualized rate of 1.1
million homes. If this report misses expect some bloodshed in
the homebuilders. There is definitely a lot of investors to
digest on top of the parade of earnings. Speaking of which
investor reaction has been rather normal. After a huge eight-
week run higher in the Dow and S&P 500 investors are choosing to
sell the news.
Today's action certainly felt bearish. Advancers lost to
decliners 12 to 16 on the NYSE and 19 to 12 on the NASDAQ. Down
volume washed over up volume on both exchanges (3:1 on the
NASDQ). Technical oscillators for a large number of sector
indices have turned or are rolling over into sell signals.
Notable losers are the GHA.X, SOX.X, and the IUX.X. Not because
they had the biggest losses, well the SOX actually wins that
honor with a 4.14% drop; but because their MACD's have the
freshest sell signals. Also notable was the XAU's gain of 1.92%.
Gold was the strongest sector today but if you look at the XAU's
performance it looks like a failed rally at 100. Be careful
there!
-----------------------------------------------------------------
Market Averages
DJIA ($INDU)
52-week High: 10701
52-week Low : 7416
Current : 10609
Moving Averages:
(Simple)
10-dma: 10577
50-dma: 10180
200-dma: 9436
S&P 500 ($SPX)
52-week High: 1155
52-week Low : 788
Current : 1144
Moving Averages:
(Simple)
10-dma: 1139
50-dma: 1091
200-dma: 1014
Nasdaq-100 ($NDX)
52-week High: 1559
52-week Low : 795
Current : 1519
Moving Averages:
(Simple)
10-dma: 1537
50-dma: 1454
200-dma: 1315
-----------------------------------------------------------------
Volatility is creeping upward, which is expected after a down day
in the markets. Unfortunately, these indices aren't signaling
any major changes.
CBOE Market Volatility Index (VIX) = 15.35 +0.80
CBOE Mkt Volatility old VIX (VXO) = 15.32 +1.00
Nasdaq Volatility Index (VXN) = 23.03 +2.04
-----------------------------------------------------------------
Put/Call Ratio Call Volume Put Volume
Total 0.87 762,179 666,311
Equity Only 0.65 653,867 421,537
OEX 1.77 16,387 29,006
QQQ 5.67 18,722 106,156
-----------------------------------------------------------------
Bullish Percent Data
Current Change Status
NYSE 78.7 + 0 Bull Confirmed
NASDAQ-100 78.0 - 1 Bull Confirmed
Dow Indust. 93.3 + 0 Bull Confirmed
S&P 500 88.4 + 0 Bull Confirmed
S&P 100 88.0 + 0 Bull Confirmed
Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart. Readings above 70 are considered overbought, and readings
below 30 are considered oversold.
Bull Confirmed - Aggressively long
Bull Alert - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert - Take defensive action if long
Bear Confirmed - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend
-----------------------------------------------------------------
5-dma: 0.99
10-dma: 0.95
21-dma: 0.95
55-dma: 1.04
Extreme readings above 1.5 are bullish, and readings below .85
are bearish. These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.
-----------------------------------------------------------------
Market Internals
-NYSE- -NASDAQ-
Advancers 1247 1216
Decliners 1618 1908
New Highs 329 275
New Lows 9 2
Up Volume 827M 512M
Down Vol. 1181M 1631M
Total Vol. 2022M 2153M
M = millions
-----------------------------------------------------------------
Commitments Of Traders Report: 01/13/04
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.
Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.
S&P 500
Wow! We've seen a mild reversal in the commercial traders'
positions. They've moved from mildly net short to mildly net
long. That's an encouraging sign for more strength in the
markets. Small traders have grown a bit more cynical with
a slight increase in short positions but they remain net
long.
Commercials Long Short Net % Of OI
12/22/03 400,066 405,240 (5,174) (0.6%)
01/06/04 403,721 408,729 (5,008) (0.6%)
01/13/04 405,558 411,361 (5,803) (0.7%)
01/23/04 422,135 407,626 14,509 1.7%
Most bearish reading of the year: (111,956) - 3/06/02
Most bullish reading of the year: 23,977 - 12/09/03
Small Traders Long Short Net % of OI
12/22/03 147,537 81,596 65,941 28.8%
01/06/04 142,844 83,518 59,326 26.2
01/13/04 149,057 90,571 58,486 24.4%
01/23/04 141,107 100,090 41,017 17.0%
Most bearish reading of the year: (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02
E-MINI S&P 500
Commercials are starting to up their bets on the e-minis with
almost 40K new longs and 44K new shorts. Small traders in
turn reduced their bets but remain net long.
Commercials Long Short Net % Of OI
12/22/03 128,801 213,021 (84,220) (24.6%)
01/06/04 175,489 240,865 (65,376) (15.7%)
01/13/04 196,858 263,845 (66,987) (14.5%)
01/23/04 233,867 307,122 (73,255) (13.5%)
Most bearish reading of the year: (354,835) - 06/17/03
Most bullish reading of the year: 133,299 - 09/02/03
Small Traders Long Short Net % of OI
12/22/03 125,248 43,482 81,766 48.5%
01/06/04 139,433 51,909 87,524 45.7%
01/13/04 191,241 62,711 128,530 50.6%
01/23/04 187,270 57,196 130,074 53.2%
Most bearish reading of the year: (77,385) - 09/02/03
Most bullish reading of the year: 449,310 - 06/10/03
NASDAQ-100
There is very little change in commercial traders' positions
here and the same holds true for the small traders.
Commercials Long Short Net % of OI
12/22/03 40,277 36,452 3,825 5.0%
01/06/04 42,892 37,801 5,091 6.3%
01/13/04 41,829 38,547 3,282 4.1%
01/23/04 42,823 39,442 3,381 4.1%
Most bearish reading of the year: (21,858) - 08/26/03
Most bullish reading of the year: 9,068 - 06/11/02
Small Traders Long Short Net % of OI
12/22/03 22,656 14,544 8,112 21.8%
01/06/04 8,035 17,911 ( 9,876) (38.1%)
01/13/04 9,705 12,539 ( 2,834) (12.7%)
01/23/04 9,180 11,371 ( 2,191) (10.7%)
Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year: 19,088 - 01/21/02
DOW JONES INDUSTRIAL
Commercials are also hesitant to make any big changes to their
net bullish stance on the Dow. Meanwhile small traders grow
a little more bearish.
Commercials Long Short Net % of OI
12/22/03 14,088 9,998 4,090 17.0%
01/06/04 15,697 9,497 6,200 24.6%
01/13/04 16,501 8,724 7,777 30.8%
01/23/04 16,403 9,252 7,151 27.9%
Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 15,135 - 10/16/01
Small Traders Long Short Net % of OI
12/22/03 6,915 8,983 ( 2,068) (13.0%)
01/06/04 5,713 8,105 ( 2,392) (17.3%)
01/13/04 6,496 9,970 ( 3,474) (21.1%)
01/23/04 6,068 10,183 ( 4,115) (25.3%)
Most bearish reading of the year: (10,136) - 12/16/03
Most bullish reading of the year: 8,523 - 8/26/03
-----------------------------------------------------------------
************************Advertisement*************************
Full Service Brokers
Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.
Live Broker and Online Trading Available 888-281-9569
http://www.OneStopOption.com
**************************************************************
FREE TRIAL READERS
******************
If you like the results you have been receiving we
would welcome you as a permanent subscriber.
The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.
We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.
To subscribe you may go to our website at
www.OptionInvestor.com
and click on "subscribe" to use our secure credit
card server or you may simply send an email to
"Contact Support"
with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.
You may also fax the information to: 303-797-1333
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
ADVERTISING INFORMATION
For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:
Contact Support

The Option Investor Newsletter Tuesday 01-27-2004
Copyright 2004, All rights reserved. 2 of 3
Redistribution in any form strictly prohibited.
In Section Two:
Dropped Calls: AMZN, MXIM, STJ
Dropped Puts: None
Call Play Updates: APOL, CSC, ESRX, GENZ, HSIC, MBI, MWD
New Calls Plays: None
Put Play Updates: ADBE, QLGC
New Put Plays: KSS, NSM
****************
PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.
CALLS:
*****
Amazon.com - AMZN - close: 55.74 chg: -1.29 stop: 55.00
According to our strategy we've been discussing the last several
days, we would have closed this play Tuesday afternoon to avoid
any earnings surprises or disappointments. It was a good thing
too because AMZN is down in after hours to $53.88 despite guiding
higher for the next quarter. AMZN reported GAAP earnings of 29
cents a share, which were in-line with expectations. Revenues
soared more than 36% to $1.95 billion for the quarter, well above
estimates of $1.86 billion. Management raised guidance for the
first quarter saying revenues should fall between $1.39-1.49
billion, above estimates of $1.32 billion. AMZN also raised its
full year projections.
Picked on January 14 at $55.01
Change since picked: + 0.74
Earnings Date 01/27/04 (confirmed)
Average Daily Volume: 10 million
Chart =
---
Maxim Integrated - MXIM - cls: 52.03 chg: -3.05 stop: 52.49
Ouch! Investor reaction to TXN and NVLS's earnings reports that
came out last night was not positive. The semiconductor index
(SOX) lost 4.14% and investors decided to take some money off the
table in MXIM. Shares of MXIM fell 5.5% and broke through
support at $52.60, passed our stop at $52.49 and stalled at $52.
Closing at its low for the day is not a good sign for tomorrow
and we'd expect MXIM to aim for the $50 level. While we may be
out of the play keep an eye on it. The $50 region is near the
bottom of its rising channel and it may offer another trading
opportunity soon.
Picked on January 06 at $51.89
Change since picked: + 0.14
Earnings Date 02/05/04 (confirmed)
Average Daily Volume: 5.4 million
Chart =
---
Saint Jude Medical - STJ - cls: 65.39 chg: +0.00 stop: 62.75
The good news for STJ shareholders is that support at $65 and its
rising 10-dma held. The bad news is that our strategy was to
close the play this afternoon to avoid any disappointing
surprises in its early morning earnings report due out tomorrow.
This closes the play for us with a small move but we won't have
any sleepless nights about whether or not STJ beats the estimates
or guides higher for the current quarter. It may not be bad news
after all.
Picked on January 12 at $64.01
Change since picked: + 1.38
Earnings Date 01/28/04 (confirmed)
Average Daily Volume: 1.4 million
Chart =
PUTS:
*****
None
************************Advertisement*************************
Full Service Brokers
Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.
Live Broker and Online Trading Available 888-281-9569
http://www.OneStopOption.com
**************************************************************
********************
PLAY UPDATES - CALLS
********************
Apollo Group - APOL - close: 72.57 change: -0.87 stop: 71.00
The past few sessions have been rough on APOL bulls, as the stock
pulled back from its highs near $75 to consolidate just above
what should now be strong support near $72. With yesterday's
strong market rally, price got a nice rebound and things were
looking rosy for those that bought last week's dip near support.
But Tuesday's broad market decline pushed APOL right back to its
$72.50 price magnet and the situation is a bit dicey here. This
could be the setup for another entry point if APOL can rebound
from above the 20-dma (currently $71.85). Note that the daily
Stochastics oscillator (5,3,3) is attempting to turn back up from
near oversold territory. But if the bears rule again tomorrow
and the 20-dma fails as support, odds are good that the nascent
Stochastics reversal will be erased and our $71 stop will be
violated. So aggressive entries can be taken on a rebound from
support, but the more conservative approach will be to wait for a
rally back through $74 before adding new positions.
Picked on January 13th at $72.63
Change since picked: -0.06
Earnings Date 3/18/04 (unconfirmed)
Average Daily Volume = 1.83 mln
---
Computer Sciences Corp - CSC - cls: 45.68 chng: -1.00 stop: 43.50
It was really disappointing to see our CSC play unable to
capitalize on yesterday's broad market rally, posting only the
tiniest of gains the day after a major breakout over $46
resistance. That disappointment grew on Tuesday, with the sharp
pullback, which erased all of last Friday's gains, leaving in
place a bearish looking 3-day candle pattern. We were hoping for
a bit of a pullback to provide a better entry near $45 and it
certainly looks like we're going to get it. The big question is
whether it will truly be an entry point or whether it should be
left alone. We'll have to let price action be our guide, but
entries should only be taken on a rebound from potential support
near $45, not just on that price level being touched. Note that
both the 10-dma ($45.23) and 20-dma ($44.99) are converged near
that level and should act to reinforce support. If looking to
enter on strength, traders will now need to wait for a rally back
over Friday's intraday high at $46.82. Maintain stops at $43.50,
which is just below the consolidation lows of the past month.
Picked on January 25th at $46.54
Change since picked: -0.86
Earnings Date 2/11/04 (confirmed)
Average Daily Volume = 1.22 mln
---
Express Scripts - ESRX - cls: 69.86 chng: +0.21 stop: 64.75*new*
As though impervious to the gyrations of the broad market, our
ESRX play just keeps grinding a bit higher each day. The
strength in the overall market yesterday lent a strong bid to the
stock, as it rebounded smartly off the 10-dma ($67.91) and it
built on those gains today, ending just below $70 after trading
slightly above that level early in the day. Over the past week,
the stock has built solid intraday support near $67.75 and a dip
back near the 10-dma may prove to be a viable entry. The
persistent rise since last week's breakout suggests that a
pullback to test the $66 support level may not be in the cards at
this time. If such a pullback did materialize though, it should
see active dip buying, especially with that support level now
reinforced by the 30-dma ($65.75). Aggressive traders can enter
on strength above today's high, but our preference remains to buy
the dips near the 10-dma. Note that we're raising our stop to
$64.75, just under the 50-dma ($64.77).
Picked on January 13th at $68.32
Change since picked: +1.54
Earnings Date 2/24/04 (confirmed)
Average Daily Volume = 1.23 mln
---
Genzyme Corp. - GENZ - close: 55.67 change: +0.05 stop: 51.00
Volatility anyone? GENZ has provided plenty of it over the past
week as the bears continue to sell into each and every rally
attempt over $56, while the bulls aggressively buy the dips below
$55. This stalemate will eventually be resolved and we think to
the upside. The wet blanket that seems to be holding the stock
back is the Biotechnology index (BTK.X), which suffered a 2% loss
on Tuesday after failing to break out over the $527.50 resistance
level yesterday. If the bulls aren't able to successfully defend
$515 support, then a dip back to the $500 area seems likely.
Such a pullback would likely have GENZ dipping back towards the
10-dma ($53.69) and quite possibly stronger support in the $52-53
area. A rebound near there would finally give the dip buyers the
entry point they've been waiting for since the stock broke above
$52 nearly 2 weeks ago. With the selling pressure that has been
coming in at the bottom of the $57-58 resistance zone, we're
still not in favor of breakout entries. Maintain stops at $51
for now.
Picked on January 20th at $53.00
Change since picked: +2.67
Earnings Date 2/19/04 (unconfirmed)
Average Daily Volume = 2.82 mln
---
Henry Schein - HSIC - close: 70.96 chg: -1.07 stop: 67.50*new*
Yesterday's strong rally in the markets inspired a nice move in
HSIC to above the $72 mark. Unfortunately, HSIC followed the
herd again today with a pull back to $71. It looks like traders
might get another opportunity to buy a dip towards the $70 level.
Fortunately, $70 should be decent support bolstered by its simple
10-dma. We're going to raise our stop to $67.50, which is about
25 cents below the simple 50-dma. In the news HSIC announced
that its CFO would be presenting at the UBS Global Healthcare
Services conference on Tuesday, February 3rd.
Picked on January 22 at $70.65
Change since picked: + 0.31
Earnings Date 03/04/04 (unconfirmed)
Average Daily Volume: 334 thousand
Chart =
---
MBIA Inc. - MBI - close: 62.58 chg: -0.65 stop: 59.99
How about that? After two days of trading MBI closed right back
at Friday's level. We keep expecting a pull back to the $61
region and it has not yet materialized. However, odds are
growing that it will. The IUX insurance index has finally closed
under its simple 10-dma (just as MBI did). The IUX has also
produced a bearish sell signal from overbought on its MACD
indicator. Together, these two observations make us cautious on
new bullish positions for MBI. A bounce from $61 still looks
buyable for MBI but any profit taking may not stop if the IUX
begins a much larger consolidation. Be careful. After 9 weeks
of gains the IUX is overdue for a dip. The question now is how
deep will it be. With this sort of bias we would not be rushing
to commit new capital to bullish plays in MBI.
Picked on January 20 at $62.93
Change since picked: - 0.35
Earnings Date 02/03/04 (confirmed)
Average Daily Volume: 572 thousand
Chart =
---
Morgan Stanley - MWD - close: 58.72 chg: -1.61 stop: 56.75
The profit taking that washed across the markets today didn't
stop at the XBD broker-dealer index, which fell 1.48%. The bad
news is that MWD under performed with a 2.66% decline of its own.
We're not excited about the close under $59.00 but mentioned a
possible dip to the 50-dma, now approaching $57.00, as the next
support level and potential entry point. If you prefer to see
the glass as half full then MWD might be building a bullish flag
consolidation pattern. We would be cautious about initiating new
positions here, especially if patient traders get an opportunity
to buy a bounce from $57.00. In the news both MWD and JPM have
decided to sell Samurai bonds. These are yen-based bonds sold in
Japan by non-Japanese entities. These typically have a five-year
maturation date.
Picked on January 15 at $59.81
Change since picked: - 1.09
Earnings Date 03/18/04 (unconfirmed)
Average Daily Volume: 3.8 million
Chart =
**************
NEW CALL PLAYS
**************
None
************************Advertisement*************************
Live Securities Brokerage Service with Licensed Option Principals
OCO Stop & Profit Orders OneStopOption
All types of Spreads and Buy Writes 888-281-9569
Auto-Trade Market Monitor Signals
Personal Service and Education
**Services available for Foreign Traders including Canada**
http://www.OneStopOption.com
**************************************************************
*******************
PLAY UPDATES - PUTS
*******************
Adobe Systems - ADBE - close: 37.59 change: -0.75 stop: 39.50*new*
Continuing to volley back and forth, the bulls and bears are
still keeping shares of ADBE pinned in a rather tight range.
Resistance has been firm at the 20-dma ($38.44) and it once again
served its function this morning, turning the stock back from its
early morning foray above $38.50. By the end of the day, ADBE
had shed nearly 2% and came to rest right back on the magnetic
200-dma ($37.60). Price action does seem to be weakening and it
seems only a matter of time before the 200-dma will give way once
and for all, leading to a break of the $36 support level and then
a drop to next support in the $33-34 area. But so far, that
break has been exceedingly elusive. The aggressive entry
strategy continues to be opening new positions on rejections from
below the 20-dma, while traders looking to enter on weakness are
still waiting for the break of $36. With the last reaction high
at $39.29 and the 50-dma now at $39.41, it seems safe to inch our
stop down to $39.50.
Picked on January 11th at $37.12
Change since picked: +0.47
Earnings Date 3/11/04 (unconfirmed)
Average Daily Volume = 3.43 mln
---
QLogic Corp. - QLGC - close: 45.54 change: -1.20 stop: 48.50
When we initiated coverage of QLGC last week, we had a strong
suspicion that the stock would rebound from the $45 level before
breaking it. Sure enough, that's what happened, with our desired
entry point near $47 resistance occurring near the end of the day
yesterday. Proof of the rightness of that strategy came today
when the stock moved lower right from the opening bell and closed
at the low of the day, pressured throughout the session by the
weakness in the Semiconductor index (SOX.X), which lost more than
4%. Traders looking to enter on weakness are likely to get their
chance tomorrow on any follow-through weakness that pressures
QLGC below the $45 level. It may happen early or it may wait
until after the FOMC nonevent -- it's hard to tell. But when the
break does occur, it will open the door to a drop near next solid
support in the $41-42 area. Until QLGC breaks and closes below
$45, we'll maintain our stop at $48.50.
Picked on January 22nd at $45.25
Change since picked: +0.29
Earnings Date 4/14/04 (unconfirmed)
Average Daily Volume = 3.85 mln
*************
NEW PUT PLAYS
*************
Kohls Corp - KSS - close: 44.05 change: -0.11 stop: 45.05
Company Description:
Based in Menomonee Falls, Wisconsin, Kohl's is a family-focused,
value-oriented specialty department store offering moderately
priced national brand apparel, shoes, accessories and home
products. The company operates 542 stores in 36 states.
(source: company press release)
Why We Like It:
We're picking KSS for the put list due to its technical weakness
and descending channel. Bears could also argue that KSS's
disappointing earnings performance last year and its -1.2%
comparable-store sales growth is pretty dismal, especially for
holiday shopping-powered December. The company also lowered its
Q4 (current quarter) guidance from 89-95 cents to 68-70 cents.
Bulls will argue that KSS is still a growth play and its $275
sales per square foot is well above its peers. We're going to
play the trend and currently the larger trend is down.
We'd suggest plays at current levels with a stop at $45.05. The
$45 level should be price resistance and the 40 & 50-dma's will
also act as technical resistance. More conservative traders
might want to consider plays once KSS trades under its 10-dma
currently at $43.35. Our first target is $40 but the bottom of
the channel suggest a possible target in the $37-38 range.
Suggested Options:
KSS earnings are in late February and we don't plan to hold over
the event. That being said our favorite strikes would be the
February puts but March and Aprils are available.
BUY PUT FEB 45*KSS-NI OI= 7363 at $2.10 SL=1.00
BUY PUT FEB 40 KSS-NH OI=12065 at $0.35 SL= --
BUY PUT MAR 45 KSS-OI OI= 173 at $2.90 SL=1.50
BUY PUT MAR 40 KSS-OH OI= 110 at $0.95 SL= --
Annotated Chart:
Picked on January 27 at $44.05
Change since picked: - 0.00
Earnings Date 02/26/04 (unconfirmed)
Average Daily Volume: 4.6 million
Chart =
---
National Semiconductor - NSM - cls: 36.73 chng: -1.57 stop: 39.00
Company Description:
National Semiconductor Corporation designs, develops,
manufactures and markets an array of semiconductor products,
including a line of analog, mixed-signal and other integrated
circuits (ICs). These products address a variety of markets and
applications, including amplifiers, personal computers, power
management, local and wide area networks (LANs and WANs), flat
panel and cathode ray tube displays and imaging and wireless
communications. The Company's operations are organized in five
groups: the Analog Group, the Displays Group, the Information
Appliance and Wireless Group, the Wired Communications Group and
the Custom Solutions Group.
Why we like it:
After months of leading the NASDAQ higher through its
demonstration of relative strength, the Semiconductor sector
(SOX.X) is finally starting to look truly top-heavy. Less then
exciting news from NVLS in its earnings report last night got the
ball rolling and the SOX shed more than 4% on Tuesday to close
just above its 50-dma ($515) and just above the bottom of the 11-
month rising channel at $510. We've had our eye on shares of NSM
since early December, when the stock first broke below $40 and
the 50-dma. The bulls managed to buy the dip and drive the stock
back up tot the $43 area earlier this month, but since then NSM
has been steadily falling. Breaking back under the 50-dma (now
at $40.48) was a nice start, but the real clincher was the break
under the 100-dma ($38.79) for the first time since last April.
After a couple days of consolidation below that average, NSM took
another sharp turn lower today, losing more than 4% and closing
below $37 for the first time since late October.
It looks like a sure deal for the $36 support level to be tested
later this week and if that support breaks, we'll be eyeing a
near-term drop near $32, the site of strong support at the top of
the early September gap. But if the profit taking gets carried
away, a drop to test the 200-dma ($30.52) isn't out of the
question. Note that a trade at $35 will generate another PnF
Sell signal, issuing a tentative bearish price target of $26.
The bullish support line is still down at $23, meaning that if
the bears do get hungry, they've got a lot of territory to cover.
Our strategy will be to use a trigger at $35.85 (just under the
12/16/03) intraday low and initially target the $32 level. If
the 200-dma is reached, we'll definitely want to take an exit
there. We'll need to monitor the SOX for signs of continued
weakness as well, and if it breaks $500, NSM seems sure to reach
at least our initial target. Set a fairly tight stop at $39,
which is just over the past three day's intraday resistance as
well as the 100-dma.
Suggested Options:
Aggressive short-term traders can use the February 35 Put, while
those with a more conservative approach will want to use the
February 40 put. Our preferred option is the March 35 strike, as
it provides more time until expiration.
BUY PUT FEB-40 NSM-NH OI=4099 at $3.80 SL=2.25
BUY PUT FEB-35 NSM-NG OI=5025 at $1.05 SL=0.50
BUY PUT MAR-35*NSM-OG OI= 663 at $1.90 SL=1.00
Annotated Chart of NSM:
Picked on January 27th at $36.73
Change since picked: +0.00
Earnings Date 3/04/04 (unconfirmed)
Average Daily Volume = 3.39 mln
************************Advertisement*************************
No time to follow the Market Monitor? Tired of missing good Trades
because you stepped away from your computer?
OneStopOption Group can follow the Market Monitor for you. You
choose the number of contracts, we take care of the rest!!
Trade Stock Options, Stocks and ALL Futures with the same Group.
Call us 888 281-9569 to see if you qualify to have us rebate your
subscription cost.
http://www.OneStopOption.com
**************************************************************
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
ADVERTISING INFORMATION
For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:
Contact Support

The Option Investor Newsletter Tuesday 01-27-2004
Copyright 2004, All rights reserved. 3 of 3
Redistribution in any form strictly prohibited.
In Section Three:
Watch List: A couple up, a couple down
**********
WATCH LIST
**********
A couple up, a couple down
___________________________________________________________________
How to use this watch list:
Readers can use the candidates below as a springboard for their
own research. Many are in the process of breaking support or
resistance or in the process of starting new trends or
extending old ones. With your own due diligence these could be
strong potential plays.
___________________________________________________________________
Davita Inc - DVA - close: 40.12 change: +0.95
WHAT TO WATCH: There was no profit taking in DVA today. The
stock actually broke out above the $40 level of resistance with
no apparent catalyst for the move. There is still potential
resistance near $40.41 from its December 3rd high but from the
looks of DVA's intraday chart we could see some follow through
tomorrow.
Chart=
---
Magna Intl Corp - MGA - close: 83.11 change: +0.64
WHAT TO WATCH: Out performing the markets today is auto-related
MGA. The stock appears to be breaking out over the $82.50 level
from a long-term wedge-pattern. We would look for a move over
$84 to confirm the bullish breakout. Fortunately, volume has
been strong the last couple of sessions.
Chart=
---
Interactive Corp - IACI - close: 32.99 change: -0.97
WHAT TO WATCH: Shares of IACI appear to be failing again at the
top of its descending channel that began back in July. IACI does
have some support at the $32 level and bearish traders might
consider a trigger there. The bottom of the channel suggests
traders could aim for a move to the $27-28 range.
Chart=
---
Wyeth - WYE - close: 41.05 change: -0.55
WHAT TO WATCH: After gapping down four days ago, shares of WYE
have continued to sink. The stock closed under its simple 50-dma
today but remains above what might be support at $41 and $40.
Bears can keep this on their list for a possible move to the $37-
38 range.
Chart=
-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------
IBM $98.80 -1.05 - As expected the $100 level is acting as new
resistance for IBM. Today's candle looks like a bearish harami
pattern. Nimble bears might consider scalping a move from $98 to
$95 with a trigger under $98.
AIG $68.45 -1.18 - AIG is looking more and more vulnerable to
potential profit taking. The IUX has closed under its 10-dma and
AIG is approaching its 21-dma. Traders could use a trigger at
$68 for a quick move to $65.
ITT $75.50 +1.14 - If you're looking for a relative strength
play, ITT is flexing its muscles. Shares broke through
resistance at $75 while the rest of the market was falling.
************************Advertisement*************************
Full Service Brokers
Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.
Live Broker and Online Trading Available 888-281-9569
http://www.OneStopOption.com
**************************************************************
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
ADVERTISING INFORMATION
For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:
Contact Support

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a
Broker/Dealer. Readers are advised that all information is issued
solely for informational purposes and is not to be construed as an
offer to sell or the solicitation of an offer to buy, nor is it to be
construed as a recommendation to buy, hold or sell (short or
otherwise) any security. All opinions, analyses and information
included herein are based on sources believed to be reliable and
written in good faith, but no representation or warranty of any kind,
expressed or implied, is made including but not limited to any
representation or warranty concerning accuracy, completeness,
correctness, timeliness or appropriateness. In addition, we do not
necessarily update such opinions, analysis or information. Owners,
employees and writers may have long or short positions in the
securities that are discussed.

Readers are urged to consult with their own independent financial
advisors with respect to any investment. All information contained in
this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please
add "support@optioninvestor.com"